The Japanese yen rose in Asian trading on Monday against a basket of major and minor currencies, extending its gains for a third consecutive session against the US dollar and marking its highest level in two weeks. The currency continued to benefit from persistent weakness in the US dollar amid rising expectations of a Federal Reserve rate cut.

The advance was also supported by comments from Bank of Japan Governor Kazuo Ueda, who kept the door open for near-term policy normalization, boosting the likelihood of a rate hike in Japan this December.

Price overview

USD/JPY today: The dollar fell 0.4% against the yen to 155.41, its lowest level since 19 November, down from an opening rate of 156.05. The session high was 156.15.

The yen ended Fridays session up 0.1% against the dollar, posting its second straight daily gain as safe-haven demand increased.

Over the month of November, the yen lost 1.4% against the dollar, its third consecutive monthly decline, driven by concerns over Prime Minister Sanae Takaichis stimulus plans.

US dollar

The US Dollar Index fell around 0.2% on Monday, deepening losses for a sixth straight session and hitting a two-week low, reflecting continued weakness in the US currency against a basket of global peers.

A series of weak US economic data and cautious commentary from Federal Reserve officials have pushed expectations higher for a rate cut in December, with markets awaiting key labor-market releases throughout this week.

Kazuo Ueda

Bank of Japan Governor Kazuo Ueda on Monday delivered a more optimistic outlook for the Japanese economy, stating that the central bank will weigh the pros and cons of raising interest rates at its upcoming December policy meeting.

Analysis and commentary

Christopher Wong, currency strategist at OCBC, said the latest signaling appears to be a pre-emptive setup for a potential rate hike, making a December or January move highly plausible.

Wong added: The key question is whether this will be a one-and-done hike followed by another long wait. A meaningful yen recovery would likely require the BOJ to maintain a stronger tightening stance.

Japanese interest rates

Sources told Reuters that the Bank of Japan is preparing markets for a possible December rate hike, reinstating its previously hawkish tone as fears over the yens sharp depreciation return and political pressure to keep rates low fades.

Following Uedas comments, market pricing for a quarter-point BOJ rate hike in December rose from 40% to 60%.

To reassess these expectations, investors are awaiting further data on inflation, unemployment, and wage growth in Japan.